IRS addresses employer payment of employee health insurance

The IRS Chief Counsel addressed several situations where an employer could exclude from an employee’s income payments for the cost of health insurance coverage provided to the employee through his or her spouse’s employer’s group health plan. The IRS determined that an employer could exclude from an employee’s gross income amounts only to the extent the spouse has paid for all or part of the coverage on an after-tax basis and not through salary-reduction under a Code Sec. 125 cafeteria plan. In addition, amounts paid under a plan or system established by an employer that makes provision for the employer’s employees, or for a class or classes of the employer’s employees, to reimburse medical expenses incurred are excluded from wages subject to FICA and FUTA taxes under Code Secs. 3121(a)(2) and 3306(b)(2). (Chief Counsel Advice Memorandum 201547006, October 2015.)

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